Johnson Repair Service had net income for the year of $125,0

Johnson Repair Service had net income for the year of $125,000. In addition, the balance sheet reports the following balances:

Jan. 1, 2016 Dec

31, 2016
Accounts Receivable $ 5,600 $ 14,200
Accounts Payable 12,000 9,500
Building 125,000 125,000
Cash 37,500 35,000
Office Furniture 25,000 50,000
Office Supplies 3,200 1,500
Notes Payable 60,000 75,000
Total Stockholders’ Equity 124,300 141,200

Calculate the return on assets (ROA ) for Johnson Repair Service for the year ending December 31, 2016.
What will be an ideal response

ANSWER

Total Assets 1/1/2016 12/31/2016
Accounts Receivable $ 5,600 $ 14,200
Building 125,000 125,000
Cash 37,500 35,000
Office Furniture 25,000 50,000
Office Supplies 3,200 1,500
Total Assets $ 196,300 $ 225,700

Return on Assets = Net Income / Average total assets

Average total assets = (Beginning total assets + Ending total assets) / 2

Return on Assets = $125,000 [($196,300 + 225,700 ) / 2]
= $125,000 / 211,000
= 5.9%